The Montcalm Framing Company does not offer group benefits to its employees, but does provide disability coverage on a couple of its key people to protect the families of the employees. In the case of James, the company owns and pays the premiums on a disability income replacement policy where James is the beneficiary. What are the income tax ramifications of this arrangement? 

A) The company may deduct the premiums for income tax purposes, but must report the premiums as a taxable benefit to James. Therefore, any benefits paid would be tax-free. 

B) The company may deduct the premiums for income tax purposes, but may not report the premiums as a taxable benefit to James. Therefore, insurance benefits paid to James would be taxable. 

C) The company may deduct the premiums for income tax purposes and choose to report the premiums as a taxable benefit to James. If so, insurance benefits paid to James would be taxable. 

D) The company may deduct the premiums for income tax purposes, but must report the premiums as a taxable benefit to James. Insurance benefits paid to James would be taxable

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